Two techniques in which you can hedge funds

Every investor wishes to compound his wealth, but this process is determined by his investment style and whether he wishes to hold short term or long term investments. The investment style and signature of each person is different, thus, the strategies he adopts will be reflective of his style.

Take, for example, hedge funds. It is often said that India does not have many high quality hedge funds, and this could be attributed to the investment style required for it. A risk-averse investor with low funds will normally steer clear of hedge funds, owing to its ‘long-short’ strategies. If undertaken with precision and knowledge, however, just like mutual funds in India, hedge funds can deliver high returns.

Hedge funds are like mutual funds NAV in many ways of operation, but there are significant departures. An entrepreneurial bent of mind is required for hedging funds, since the investor works with large sums of money over both short and long periods of time. There is a greater degree of intervention required by the investor in managing the fund as well.

The following are two ways to start a hedge fund:

  1. Adopt a strategy that is workable.

Your investors and corporations will need a detailed plan of your strategy and track record. Present a plan that has worked in the past with updated strategies of how you plan to tackle the hedge fund at hand. This will involve pooling in a significant amount of your own money. Participating entities have higher confidence in the fund if your own money is pooled in. It is also a good incentive to perform well. If you are unable to raise too much of your own money, get a hedge fund seeding entity involved at a fee.

It is viable to seek a good office space from where you and your team can operate. Supplying the office with the best technology will be a big bonus – high speed Internet connections, phone lines and TV sets are mandatory office furniture for hedge fund teams.

  1. Assemble a good support team.

If you are managing the hedge fund yourself, you will need an excellent back up team of service providers and lawyers. It is a wise move to include a combination of experienced and fresh market researchers to get constant perspectives on market trends. Also include administrators and auditors. The team you put together must be well connected in the industry, and must be able to put together a roster of high quality clients. Besides this, it must be able to work out the right strategies for your hedge fund, such as the fee structure you will charge, the terms of redeeming money, the lock-in period and the performance index that you will target to get a bonus on the fund.

You must make sure that you set aside a part of your hedge fund earnings for your personal use every month, while reinvesting the remainder back into the fund to make it grow.

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Author: Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to editor.webposts@gmail.com.